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Join our panel of leading economic and transportation analysts as they share their exclusive insight on where rates are headed and the issues that will be driving those rate increases over the next 12 months.

In one corner, the world’s largest and most profitable transportation company. In the other corner, the Teamsters union. In other words, get ready for a heavyweight labor contract negotiation.

UPS and the roughly 275,000 Teamsters who make it arguably the best-run transport company in the world have already begun talks on the contract that expires July 31. It is the largest collective bargaining agreement in the nation.

While no one is expecting a repeat of the 1997 strike that idled UPS for 15 days in 1997, the early stages of the negotiation have been marked by the usual tough rhetoric by the union and complete silence on the part of the company.

Another factor somewhat complicating these talks is they are two separate negotiations: one for the parcel side of UPS (covering 260,000 workers) and another for LTL hauler UPS Freight (covering 15,000 or so workers).

UPS representatives are nearly apologetic about the news blackout from their side. That is a sure sign of the importance and sensitivity of these contract talks.

“I apologize but we do not have any updates or comments about current negotiations,” a UPS spokesman, Dan McMackin, said in an email, declining further comment.

Teamsters are more than happy to fill that vacuum. They pointed out the difference in the major issues in the two contracts. For UPS Freight, the major issues are:
-addressing what the union calls “harassment” regarding the use of telematics;
-poor staffing levels and retaliation due to accident and injury reports, and other issues regarding filing grievances; and
-prohibiting subcontracting of bargaining unit work to non-union carriers.

In the small parcel contract at UPS, some of the union’s major issues are:
-dealing with the expansion of the company’s SurePost service and packages handled by the U.S. Postal Service;
-how to protect and improve pensions;
-protecting affordable retiree healthcare and restoring health insurance for part-timers after 90 days; and
-improving part-time pay, which starts around $9 an hour compared to about $20 an hour for full-time UPSers.

Another hot-button issue is health care. Currently UPS Teamsters enjoy a zero co-pay for health care coverage—and they intend to keep it that way.

UPS is proposing Teamsters pay up to $90 a week for health benefits. But that appears to be a non-starter with Teamsters leadership drawing a line in the sand on that issue.
As Teamsters General Secretary-Treasurer Ken Hall, the chief negotiator in the UPS contract talks, said: “We’re not paying $90. We’re not paying $9. We’re not paying 9 cents. We’re not paying premiums for health insurance for a company that made $4.839 billion.”

In the fourth quarter of 2012, UPS earned $2.05 billion in net profit excluding a big one-time pension accounting “non-cash charge” of $3 billion. Teamsters officials noted that the charge did not affect the company’s cash flow or benefits paid to participants. After that paper loss, UPS posted an official fourth-quarter net loss of $1.75 billion.

Teamsters officials are used to this sort of stuff. As one official simply said of the fourth quarter loss, “It’s contract time.”

David Ross, trucking analyst for Stiflel Nicolaus, noted UPS began the year with roughly $8 billion in cash and equivalents on hand. It already has paid down $1.75 billion of its total $11 billion debt this year. Ross said he expects UPS to pay down more debt this year out of its cash balance.

In his recommendation to investors, Ross called UPS “a good large cap defensive play,” adding it is a “very well-run company trading at a fair price (around $80 per share at press time. The biggest near-term risk, Ross added, was its Teamsters contracts.

“The company is very well heeled financially and may have to give its workers a better contract than the last one,” Ross noted.

UPS Teamsters hope so. The world’s largest transportation company is tremendously profitable. Without the accounting charge, UPS would have earned about $10 billion on close to $60 billion revenue last year. And it’s growing.

UPS’s fourth quarter 2012 revenue rose to $14.57 billion—up $400 million compared to last year. UPS posted record 2012 fourth quarter and full year adjusted diluted earnings per share of $1.32 and $4.53, respectively. It also had free cash flow of $5.3 billion last year.

Some UPS financial highlights that Teamsters are emphasizing in their bid to win a successful contract:
-daily package volume was up 3 percent in Q4 to 16.2 million domestic packages a day; and
-operating profit in the company’s domestic package operation increased by 4.4 percent in Q4.

UPS Teamsters say they continue to deliver huge revenue for the company, and believe it’s time for UPS to negotiate a fair contract. One key sticking point is use of part-timers—or as the union puts it, “Ending part-time poverty at UPS.”

Before 1982, part-timers made the same wages as full-timers. That year, the hourly starting rate was cut to $8. It has gone up just by $1 in 30 years. Adjusted for inflation, part-time wages are now less than half of what they were 25 years ago, according to the Teamsters. How much are part-time increases needed? Consider these facts, as posted on the TDU web site:
-if UPS part-time wages had just kept up with inflation, then the starting wage for part-timers today would be $17.75;
-if part-time wages had kept pace with inflation, part-timers would be making $24.41 after just two years at UPS; and
-today’s starting wage of $8.50 is worth just $3.82 in 1982 dollars.

About half of UPS’s total Teamster work force in its package unit of 260,000 are part-timers. Under terms of a deal negotiated back in 1983, UPS part-timers start at a salary of $8.50 an hour—barely above the minimum wage—while full-time UPSers start at close to $20 an hour.

“The company needs to know we will vote no on any contract that doesn’t include higher wages and more full-time jobs.” Nick Perry, a preload steward

For Local 413, Columbus, Ohio, says in a comment posted on the TDU web site.

Many UPS part-timers got a 47.5¢ hourly raise on Feb 1. But they still are far behind the nearly $30 an hour (before benefits) that full-time experienced UPS Teamsters earn. “When’s the next raise and when will starting pay go up? That all depends on what happens with our new union contract,” Perry added, according to the TDU web site.

About the Author

John D. SchulzContributing Editor

John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. He is known to own the fattest Rolodex in the business, and is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis. This wise Washington owl has performed and produced at some of the highest levels of journalism in his 40-year career, mostly as a Washington newsman.

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